This antitrust class action was brought on behalf of approximately 12
million merchants against Visa and MasterCard, which are the two largest credit
card issuing networks in the United States, as well as against various issuing and
acquiring banks, alleging a conspiracy in violation of Section 1 of the Sherman

Case 12-4671, Document 1556-1, 06/30/2016, 1806077, Page2 of 41

Act. After nearly ten years of litigation, the parties agreed to a settlement that
released all claims in exchange for disparate relief to each of two classes: up to
$7.25 billion would go to an opt‐out class, and a non‐opt‐out class would get
injunctive relief. The district court certified these two settlement‐only classes,
and approved the settlement as fair and reasonable. On this appeal, numerous
objectors and opt‐out plaintiffs argue that this class action was improperly
certified and that the settlement was unreasonable and inadequate. We conclude
that the class plaintiffs were inadequately represented in violation of Rule 23(a)(4)
and the Due Process Clause. Accordingly, we vacate the district court’s
certification of this class action and reverse the approval of the settlement.
Vacated, reversed, and remanded.
Judge Leval concurs in a separate opinion.
THOMAS C. GOLDSTEIN (Eric F. Citron,
on the brief), Goldstein & Russell P.C.,
Washington, DC; Stephen R. Neuwirth,
Sanford I. Weisburst, Steig D. Olson, and
Cleland B. Welton II, Quinn Emanuel
Urquhart & Sullivan, LLP, New York, NY;
Jeffrey I. Shinder, Gary J. Malone, and A.
Owen Glist, Constantine Cannon LLP, New
York, NY; Michael J. Canter, Robert N.
Webner, and Kenneth J. Rubin, Vorys,
Sater, Seymour and Pease LLP, Columbus

DENNIS JACOBS. DC. Valarie C. Document 1556-1. Mocciolo.S. Jones Day. Bonder. Williams. 1806077. alleging a
conspiracy in violation of Section 1 of the Sherman Act. Pullman & Comley.25 billion would go to an
opt‐out class. Patterson Belknap
Webb & Tyler LLP. Cavanaugh. Inc. Page6 of 41
Washington. and a non‐opt‐out class would get injunctive relief.
Atlanta.
and Kara F. Alston & Bird LLP. Orleans and
Adam S. as well as against various issuing and acquiring
banks (collectively with Visa and MasterCard.A. Washington. Circuit Judge:
This antitrust class action was brought on behalf of approximately 12
million merchants against Visa U. (“Visa”) and MasterCard International
Incorporated (“MasterCard”). Kennedy. After nearly ten years of
litigation. which are the two largest credit card issuing
networks in the United States. John M. and approved the settlement as
6
. the “defendants”). Bridgeport. GA. CT. The district
court certified these two settlement‐only classes. Robert P. for
Defendants‐Appellees. Stoeppelweth.
Wilmer Cutler Pickering Hale and Dorr
LLP. Ali M. Jonathan B. LoBue and
William F. Clark. New York. the parties agreed to a settlement that released all claims in exchange
for disparate relief for each of two classes: up to $7. Majoras and
Joseph W. 06/30/2016.
DC. NY.Case 12-4671.
LLC. Teresa T. DC. Washington.

344 F.3d 124. 2003).
Inc.A. 234‐37 (2d Cir.3d 229. 2d 207. Inc. Supp. 2005). 2013). United States v. This section of the
opinion lays out only the facts and procedural history needed to explain our
analysis and result. and in our previous opinions dealing
with past antitrust lawsuits against Visa and MasterCard. (“Visa Check”). Page7 of 41
fair and reasonable. Document 1556-1. In re Visa Check/MasterMoney Antitrust
Litig. 396 F. we vacate the district court’s certification of this class
action and reverse the approval of the settlement.3d 96.A. v. 2001). We conclude that the class plaintiffs were
inadequately represented in violation of Rule 23(a)(4) and the Due Process
Clause..Case 12-4671.S.Y. 1806077.. Inc. Wal‐Mart Stores. Visa U.
7
.. 101‐02 (2d Cir.
BACKGROUND
Detailed information about how the credit card industry operates is set out
in the district court opinion approving the settlement in this case.
Visa U. 280 F.S. 06/30/2016. On this appeal.D. 129‐31 (2d Cir.N. Accordingly.
986 F. numerous objectors and opt‐out plaintiffs
argue that this class action was improperly certified and that the settlement was
unreasonable and inadequate. In re Payment
Card Interchange Fee and Merchant Discount Antitrust Litig.. (“Payment Card I”). 214‐15 (E.

06/30/2016. Document 1556-1. a Visa or MasterCard credit card transaction is processed
as follows: the customer presents a credit card to pay for goods or services to the
merchant.Case 12-4671. the network relays the information to the issuing bank. such as cards that give consumers generous rewards.
And Visa and MasterCard have different product levels within their credit card
portfolios. Page8 of 41
In general terms. 1806077.
Visa or MasterCard). The
difference in interchange fee between American Express and Visa or MasterCard
8
.
the acquiring bank processes the information and relays it to the network (here. Thus. the American Express credit‐card network
generally charges a higher interchange fee than the Visa or MasterCard networks. if the
issuing bank approves the transaction. that approval is relayed to the acquiring
bank. the interchange fee that the acquiring bank pays
(and is in turn paid by the merchant) varies depending on the credit card network
and the type of credit card. the merchant relays the transaction information to the acquiring bank. which then relays it to the merchant. the
merchant receives the purchase price minus two fees: the “interchange fee” that
the issuing bank charged the acquiring bank and the “merchant discount fee” that
the acquiring bank charged the merchant.
In a given transaction. If the transaction is approved. and typically
charge a higher interchange fee than cards that offer few rewards or none.

Plaintiffs are all merchants who accept Visa‐ and MasterCard‐branded
credit cards and are therefore bound by the issuers’ network rules.
Plaintiffs allege that these Visa and MasterCard network rules. while the difference between. a rewards card from
Visa and a no‐rewards card from Visa is one at the product level. The argument is that the
9
.. The
“honor‐all‐cards” rule requires merchants to accept all Visa or MasterCard credit
cards if they accept any of them. Document 1556-1.g. Page9 of 41
is one at the brand level. 06/30/2016. 1806077. which prohibit merchants from charging different prices
at the point of sale depending on the means of payment. Plaintiffs
challenge as anti‐competitive several of the following network rules (which are
effectively identical as between Visa and MasterCard). regardless of the differences in interchange fees. such as cash rather than credit. The “default
interchange” fee applies to every transaction on the network (unless the merchant
and issuing bank have entered into a separate agreement).
Multiple rules prohibit merchants from influencing customers to use one type of
payment over another.Case 12-4671. working in
tandem. e. These “anti‐steering” rules include the “no‐surcharge”
and “no‐discount” rules. allow the issuing banks to impose an artificially inflated interchange fee
that merchants have little choice but to accept. or a credit card with a
lower interchange fee.

Page10 of 41
honor‐all‐cards rule forces merchants to accept all Visa and MasterCard credit
cards (few merchants can afford to accept none of them).Case 12-4671. 06/30/2016. Document 1556-1. Visa and MasterCard
agreed to permit merchants to discount transactions to steer consumers away
10
. publicly traded
company. and allowed merchants to discount
debit card purchases relative to credit card purchases. and
that rate is effectively locked in via the default interchange fee because the issuing
banks have little incentive to deviate from it unless a given merchant is huge
enough to have substantial bargaining power.
Both Visa and MasterCard conducted initial public offerings that converted each
from a consortium of competitor banks into an independent. the
issuing banks are thus free to set interchange fees at a supra‐competitive rate.
Developments since then have altered the credit card industry in important ways. 1806077.
The first consolidated complaint in this action was filed in 2006. Finally. pursuant to a
consent decree with the Department of Justice in 2011. The “Durbin Amendment” to the Dodd‐Frank Wall Street Reform
and Consumer Protection Act of 2010 limited the interchange fee that issuing
banks could charge for debit card purchases. the anti‐steering rules
prohibit them from nudging consumers toward cheaper forms of payment.

2d at 213. the plaintiffs
pressed on. and the production of over 80 million pages
of documents. 06/30/2016.Case 12-4671. 2013. after several more marathon negotiations with the mediators
(including one more with the district court and magistrate judges). Page11 of 41
from credit cards use. 217. and cross‐motions for summary judgment. the parties participated in concurrent settlement negotiations
assisted by well‐respected mediators.
Beginning in 2008.
The Settlement Agreement divides the plaintiffs into two classes: one – the
Rule 23(b)(3) class – covers merchants that accepted Visa and/or MasterCard from
January 1. a motion
to dismiss supplemental complaints. the other – the Rule 23(b)(2) class – covers
11
. 2004 to November 28. Discovery included more than 400 depositions. or the existence of a default interchange fee. 2012. Payment Card I. 2012.
In October 2012. The district court granted preliminary
approval of the proposed settlement on November 27.
Notwithstanding these pro‐merchant industry developments. None of these developments affected the honor‐all‐cards
or no‐surcharging rules. 986 F. The parties fully briefed a motion for class certification. 32
days of expert deposition testimony. the parties
executed the Settlement Agreement. and final approval on
December 13. 1806077. Supp. Document 1556-1. the district judge and
the magistrate judge participated in the parties’ discussions with the mediators. 17 expert reports. At the end of 2011.

e. 1806077. That is. Attorney Gen. The incremental
value and utility of this relief is limited. 80 (5th Cir. but members of the
second. 816 F. including
New York.g. 06/30/2016. Rowell v. The former class would be eligible to receive up to
$7.3d 118. however. Expressions Hair Design v.Case 12-4671.25 billion in monetary relief. 2016) (upholding the Texas ban on credit‐card
surcharges).. and Texas.R. the latter would get injunctive relief in the form of
changes to Visa=s and MasterCard’s network rules. California. because many states. Document 1556-1. 808 F. or a Visa
rewards card instead of a Visa card that yields no rewards. prohibit surcharging as a matter of state law.3d 73.
12
. 2012 onwards forever.
See. But see Dana’s R.
The most consequential relief afforded the (b)(2) class was the ability to
surcharge Visa‐ and MasterCard‐branded credit cards at both the brand and
product levels. Page12 of 41
merchants that accepted (or will accept) Visa and/or MasterCard from November
28. Schneiderman.
2015) (upholding the New York ban on credit‐card surcharges). a merchant could increase the price of a good at the point
of sale if a consumer presents (for example) a Visa card instead of cash.3d 1235. members of the first class (which
receives money damages in the settlement) could opt out. Because of the difference
between Rule 23(b)(3) and Rule 23(b)(2). 127 (2d Cir. Florida.
Pettijohn. Supply v. 807 F. forward‐looking class (which receives only injunctive relief) could not..

Document 1556-1.
The Settlement Agreement provides that all of the injunctive relief will
terminate on July 20. and the Settlement Agreement permits surcharging for Visa or
MasterCard only if the merchant also surcharges for use of cards issued by
competitors such as American Express. 1806077. under the most‐favored‐nation clause included in the Settlement
Agreement. 06/30/2016.Case 12-4671. all other policies and practices (concerning credit card
transactions) that were in place as of November 27. and any substantially
13
.
lock‐in the benefits of the Durbin Amendment and Department of Justice consent
decree.
Visa and MasterCard also agreed to modify their network rules to reflect
that they will: negotiate interchange fees with groups of merchants in good faith. 2021. the plaintiffs are bound by a release that waives any claims they
would have against the defendants for: all of the conduct challenged in the
operative complaint. merchants that accept American Express cannot avail themselves of
the surcharging relief because American Express effectively prohibits
surcharging. and permit a merchant that operates multiple businesses under different
names or banners to accept Visa or MasterCard at fewer than all of its businesses. Page13 of 41
1249 (11th Cir. 2012.
Moreover.
In return. 2015) (striking down Florida ban on credit‐card surcharges).

2021. That is. the
defendants continue to enjoy the benefit of the release as to all claims the plaintiffs
potentially had against the defendants for any of the network rules existing as of
November 27. or impose rules that are
substantially similar to the modified rules. 2012. for as long
as Visa and MasterCard elect to leave in place their network rules as modified by
the Settlement Agreement or adopt rules substantially similar thereto. inter alia. provided only that Visa and MasterCard keep in place the several
rules that were modified by the injunctive relief provided to the (b)(2) class
(including. 2021. While the injunctive relief for the
(b)(2) class will expire on July 20. after July 20. if
Visa or MasterCard revert to their pre‐Settlement Agreement rules by forbidding
merchants from surcharging. the Visa or MasterCard networks rules are changed
such that they are no longer substantially similar to their form as modified by the
Settlement Agreement. this release has no end date.
If.Case 12-4671. For example. 1806077. 06/30/2016. then the release will not bar future merchants
included in the (b)(2) class from bringing antitrust claims arising out of the
14
. permitting merchants to surcharge). Page14 of 41
similar practices they adopt in the future. Document 1556-1. after July 20. It operates
in perpetuity. 2021. then merchants are freed from the release as to claims
arising out of that new network rule – but only as to such claims.

no merchant will ever be permitted to bring claims arising out of the
network rules that are unaffected by this Settlement Agreement.3d 242. i. 249 (2d Cir. Page15 of 41
prohibition on surcharging. 247 (2d Cir.Case 12-4671.
The district court’s factual findings are reviewed for clear error. Document 1556-1. 06/30/2016. the honor‐all‐cards rule or existence of default interchange fees.3d 241. 2021. so that a
suit by the future plaintiff could not challenge any of the unchanged network
rules. 731 F.. whether the
decision (i) rests on a legal error or clearly erroneous factual finding.
15
. its conclusions of
law are reviewed de novo. 654 F.e. including most
importantly. argue that the (b)(2) class was improperly certified and
that the settlement was inadequate and unreasonable. such as the honor‐all‐cards rule or imposition of default interchange fees.
Appellants. including those that opted out from the (b)(3) class and
objected to the (b)(2) class. Wiener. In re Literary Works in Elec.
Databases Copyright Litig.
DISCUSSION
Certification of a class is reviewed for abuse of discretion. but the rest of release would remain in effect. Charron v. 2011). 2013). or (ii) falls
outside the range of permissible decisions. (“Literary Works”). regardless what Visa or MasterCard do with their network rules after July
20. 1806077.
In sum.

Dukes. “In order to justify a departure from that rule. Windsor. . fairly and adequately protect the interests of the class. Class actions and settlements that do not comply
with Rule 23(a)(4) and the Due Process Clause cannot be sustained. 521 U.Case 12-4671. Lee. Ct.
Shutts. 32. Rule 23(a)(4). 472 U.
Procedural deficiencies produced substantive shortcomings in this class action
16
. 1806077. v. Page16 of 41
Class actions are an exception to the rule that only the named parties
conduct and are bound by litigation. which requires that “the
representative parties . 2550 (2011) (internal
quotation marks and citations omitted). 797.
We conclude that class members of the (b)(2) class were inadequately
represented in violation of both Rule 23(a)(4) and the Due Process Clause.20 (1997). Document 1556-1. 812 (1985). 131 S.S.” as well as the “competency and conflicts of class counsel. 591. Inc.S. 06/30/2016.S. . 2541.”
Amchem Prods. 626 n. 311 U. 40‐41
(1940). See Hansberry v. “[T]he Due
Process Clause of course requires that the named plaintiff at all times adequately
represent the interests of the absent class members. 625..” Phillips Petroleum Co.” Wal‐Mart v. a class representative must
be part of the class and possess the same interest and suffer the same injury as the
class members.”
“serves to uncover conflicts of interest between named parties and the class they
seek to represent. v. That principle is secured by Rule
23(a)(4) and the Due Process Clause.

. Amchem.R. 2001)
(“Two factors generally inform whether class representatives satisfy the Rule
23(a)(4) requirement: ‘(1) absence of conflict and (2) assurance of vigorous
prosecution. Deutsche Bank AG. 443 F.3d 253. this class action was improperly certified and the
settlement was unreasonable and inadequate. 268 (2d Cir. 2006).
I
Under Rule 23(a)(4).” Charron. Co. As a result. Id. and must have no interests antagonistic to the interests of other class
members. 731
F. courts consider whether the class
representative has adequate incentive to pursue the class’s claim. at 171. One common
17
. and whether
some difference between the class representative and some class members might
undermine that incentive. Page17 of 41
and the settlement. see
also Robinson v. Metro‐North Commuter R.3d at 249‐50 (internal citations omitted). Document 1556-1. 1806077.S.Case 12-4671.’”) To assure vigorous prosecution.3d 147. 267 F. at 627.” Denney v. 521 U. 06/30/2016. To avoid antagonistic interests. “[a]dequacy is twofold: the proposed class
representative must have an interest in vigorously pursuing the claims of the
class. must be addressed with a “structural
assurance of fair and adequate representation for the diverse groups and
individuals” among the plaintiffs. 170 (2d Cir. any
“fundamental” conflict that goes “to the very heart of the litigation.

S. The focus of the Rule 23(a) inquiry remains
on “inequity and potential inequity at the precertification stage. 521 U. even
heightened.Case 12-4671. at 858). 443 F. 527 U. 527 U. 815.
A
The Supreme Court wrote the ground rules for adequate representation in
the settlement‐only class context in Amchem and Ortiz.
The single‐class proposed settlement in Amchem potentially encompassed
millions of plaintiffs who had been exposed to asbestos. 06/30/2016.
“Adequacy must be determined independently of the general fairness
review of the settlement. without distinction
18
.’” Denney. 856 (1999). 527 U. So when (as here) the district court certifies the class at the same time it
approves a settlement.” Ortiz. with separate representation to eliminate conflicting interests of
counsel.. Page18 of 41
structural protection is division of the class into “homogenous subclasses under
Rule 23(c)(4)(B).S.” Amchem.
at 858. Our
recent decision in Literary Works contributed a gloss on the subject.S. 1806077.3d at
268 (quoting Ortiz. two asbestos cases. attention. Fibreboard Corp. at 620.” Ortiz v. the fact that the settlement may have overall benefits for
all class members is not the ‘focus’ in ‘the determination whether proposed
classes are sufficiently cohesive to warrant adjudication. Document 1556-1. the requirements of Rule 23(a) “demand undiluted.S.

that the settlement required a “structural
assurance of fair and adequate representation for the diverse groups and
individuals. 521 U.S. 521 U.” Ortiz. requires division into homogenous subclasses
under Rule 23(c)(4)(B).3d at
250 (quoting Amchem.Case 12-4671.S. A second fatal deficiency in the
Ortiz settlement was that all present claimants were treated equally. . inflation‐protected fund for the future.
Two years later. and
emphasized: “it is obvious after Amchem that a class divided between holders of
present and future claims . at 627). . Page19 of 41
between those who had already manifested asbestos‐related injuries and sought
“generous immediate payments. 521 U. the Supreme Court again considered a settlement‐only
class action that joined present and future claimants in a single class.S.’” Literary Works. with separate representation to eliminate conflicting
interests of counsel.
The two subgroups had “competing interests in the distribution of a settlement
whose terms reflected ‘essential allocation decisions designed to confine
compensation and to limit defendants’ liability. Document 1556-1. 527 U. at 856. 06/30/2016.
19
. at
626. A single class representative could not adequately represent both interests.” Amchem. at 627.” and those who had not manifested injury and
sought “an ample. on an issue so crucial. 1806077. 654 F.” Amchem. The antagonistic interests were so
pronounced.S.

. 06/30/2016. 654 F. and among plaintiffs with differently valued claims. “It is no answer
to say . 1806077. were so
fundamental that they required “structural protection” in the form of subclasses
with separate counsel.3d at 251. . Id.. The settlement divided
class claims into three categories. their recovery alone would be
reduced to bring the total payout down to $18 million.
we held that (at a minimum) class members with claims only in the third category
20
. Document 1556-1. Page20 of 41
notwithstanding that some had claims that were more valuable. that these conflicts may be ignored because the settlement makes no
disparate allocation of resources as between the conflicting classes” for the “very
decision to treat them all the same is itself an allocation decision with results
almost certainly different from the results that [the disparate claimants] would
have chosen. The class representatives
of the single class included individuals with claims in each category.” Literary Works. These fault lines between present and future
plaintiffs. i.e.” Id. The settlement was less
generous to the third category. at 857.
Literary Works contained the same “ingredients of conflict identified in
Amchem and Ortiz. and required the holders of those claims to
exclusively bear the risk of over‐subscription.Case 12-4671. nevertheless. capped defendants’ overall liability at $18
million. and used a formula for splitting this amount.

1806077. 521 U.
Since some named representatives held claims across all three categories. A great risk thus
arose that class representatives would sell out the third category of claims for
terms that would tilt toward the others. 06/30/2016.
whereas class members with claims only in the third category would want to
maximize the compensation for that category in particular.
the class did not encompass mutually exclusive groups as in Amchem. not for a
separate constituency.” Id. Document 1556-1.
We did not conclude that the third category’s “inferior recovery [w]as
determinative evidence of inadequate representation. each
impermissibly “served generally as representative for the whole. “The problem. at 253. Page21 of 41
required separate representation because their interests were antagonistic to the
others on a matter of critical importance – how the money would be distributed.Case 12-4671.S. at 254. the resulting settlement
awarded the third category less. [wa]s that
21
. As it transpired. Class
representatives with claims in all three categories naturally would want to
maximize their overall recovery regardless of allotment across categories. still. of course. at 627).
Id. The claims in
third category were objectively the weakest. and taxed that lesser recovery with all the risk
that claim would exceed the liability cap. at 251 (quoting Amchem.” Id.

1806077. Class representatives
had interests antagonistic to those of some of the class members they were
representing.” including
“highly respected and capable” mediators and associational plaintiffs.” Id.” Id.Case 12-4671. While the settlement “was the product of an
intense. involving multiple parties. and the
advocacy of an attorney representing each subclass. Page22 of 41
we ha[d] no basis for assessing whether the discount applied to Category C’s
recovery appropriately reflect[ed] that weakness. can ensure that the interests
of that particular subgroup are in fact adequately represented. Id. and Literary Works. at 252‐53. Document 1556-1.
Divided loyalties are rarely divided down the middle. adversarial mediation. these
features of the negotiation could not “compensate for the absence of independent
representation” because there could be no assurance that anyone “advanced the
strongest arguments in favor” of the disfavored claims. The fault lines were glaring as to matters of fundamental
22
.
B
Like the settlement‐only classes in Amchem. 06/30/2016. the
unitary representation of these plaintiffs was inadequate. at 252.” Id. The
eventual settlement proved that “[o]nly the creation of subclasses. We could not know the
right value of the category C claims “without independent counsel pressing its
most compelling case. Ortiz. protected.

at
627. and merchants in the (b)(2) class. defined as
those seeking only injunctive relief. The former would want to maximize cash
compensation for past harm.” Amchem. but none was provided. while merchants in the (b)(2) class would enjoy the
benefit of some temporary changes to the defendants’ network rules. Document 1556-1. 1806077. Page23 of 41
importance. which are
pursuing solely monetary relief.
The conflict is clear between merchants of the (b)(3) class. “it is obvious after Amchem that a class divided between holders of
23
. Amchem tells us that such
divergent interests require separate counsel when it impacts the “essential
allocation decisions” of plaintiffs’ compensation and defendants’ liability.
However. 06/30/2016.S. The same
counsel represented both the (b)(3) and the (b)(2) classes. 521 U. and the latter would want to maximize restraints on
network rules to prevent harm in the future.
Amchem. 521 U. at 627.S.25 billion of damages. Such conflicts and absence of incentive required a sufficient
“structural assurance of fair and adequate representation. The Settlement Agreement does manifest tension on
an “essential allocation decision”: merchants in the (b)(3) class would share in up
to $7.Case 12-4671. The class counsel and
class representatives who negotiated and entered into the Settlement Agreement
were in the position to trade diminution of (b)(2) relief for increase of (b)(3) relief.

with separate representation. or have growing credit card sales.
Moreover. The (up
to) $7.
(“Payment Card II”).” Ortiz. 527 U. competing.Case 12-4671. 2d at 229. Document 1556-1. 06/30/2016. Unitary representation of
separate classes that claim distinct. Supp. 440 (E. 2012.8 million in fees. many members of the (b)(3) class have little to no interest in the
efficacy of the injunctive relief because they no longer operate. 986 F. For their
services. .
many members of the (b)(2) class have little to no interest in the size of the
damages award because they did not operate or accept Visa or MasterCard before
November 28. 2d 437. the district court granted class counsel $544.Y. Supp.” Payment Card I.S. . By the same token. In re
Payment Card Interchange Fee and Merchant Discount Antitrust Litig.D. and conflicting relief create
unacceptable incentives for counsel to trade benefits to one class for benefits to
the other in order somehow to reach a settlement. or no longer accept
Visa or MasterCard. at 856. 1806077. The district court
calculated these fees based on a graduated percentage cut of the (b)(3) class’s
24
.
Class counsel stood to gain enormously if they got the deal done. Page24 of 41
present and future claims . requires division into homogenous
subclasses . . 2014).25 billion in relief for the (b)(3) class was the “largest‐ever cash settlement in
an antitrust class action. . or have declining credit card sales.N. 991 F.

to overcome the lack of separate class counsel and representative. thus counsel got more money for each additional dollar they secured for
the (b)(3) class. 06/30/2016. Cf.
Nonetheless. Visa
25
. We expressly do not impugn the motives or acts of class counsel. a court cannot assume class
counsel adequately represented the latter group’s interests. class counsel was charged with an inequitable task.” Amchem.4. The resulting dynamic is the same as in Ortiz. 527 U.
The trouble with unitary representation here is exacerbated because the
members of the worse‐off (b)(2) class could not opt out. 1806077.Case 12-4671. Page25 of 41
recovery. but only if
counsel resolves another group of plaintiffs’ claims.S. id. at 442 n. at
852.S. The (b)(2) merchants are
stuck with this deal and this representation. at
627. Ortiz. 521 U. and class
counsel did not even ask to be compensated based on the size or significance of
the injunctive relief. Document 1556-1. But the district court’s calculation of fees explicitly did not rely
on any benefit that would accrue to the (b)(2) class. We do not decide whether
providing these class members with opt out rights would be a sufficient
“structural assurance of fair and adequate representation. Id. As the
Supreme Court recognized in that case: when “the potential for gigantic fees” is
within counsel’s grasp for representation of one group of plaintiffs.

Case 12-4671. 280 F. It is enough to say that this feature of the Settlement
Agreement compounded the problem. or to voice the interests of a group for which
no one else is speaking. Document 1556-1. Page26 of 41
Check.3d at 147. 1806077.” D’Amato v. 2001). adversarial mediation.” including “highly respected and capable” mediators
and associational plaintiffs.3d at 252‐53. 236
F. 06/30/2016.
Nor is the problem cured by the partial overlap of merchants who get cash
as members of the (b)(3) class and become members of the (b)(2) class as they
continue to accept Visa or MasterCard.” Literary Works. True. The mission of mediators
is to bring together the parties and interests that come to them. does not “compensate for the absence of independent
representation. 85 (2d Cir.
One aspect of the Settlement Agreement that emphatically cannot remedy
the inadequate representation is the assistance of judges and mediators in the
bargaining process. It is not their role
to advance the strongest arguments in favor of each subset of class members
entitled to separate representation. 654 F. Deutsche Bank.
involving multiple parties. protected.3d 78. But even “an intense. The force of Amchem and Ortiz does not
26
. “a court‐appointed mediator’s involvement in
pre‐certification settlement negotiations helps to ensure that the proceedings
were free of collusion and undue pressure.

Amchem
observed that “where differences among members of a class are such that
subclasses must be established. Dist. whatever overlap presently exists is partial and shrinking with
time.” Amchem. 06/30/2016. As of the September 12. on the other hand.Case 12-4671. . at 627 (quoting In re Joint E. 1993)). That figure of course
does not include merchants that have come into being since then. rather than the recovery for any single subgroup.
27
.. Asbestos Litig. 1992). 521
U. Page27 of 41
depend on the mutually exclusivity of the classes. we know of no authority that permits a court to
approve a settlement . . The membership of the (b)(3) class. on the basis of consents by members of a unitary class.S.2d 7 (2d Cir. modified on reh’g. or those that
will come into being in the future. reasoning that
named plaintiffs with claims in multiple subgroups cannot adequately represent
the interests of any one subgroup because their incentive is to maximize their own
total recovery. it was enough that the classes
did not perfectly overlap. 2013 fairness hearing. class counsel reported that
the class was composed of about 12 million merchants. all of whom will be members of only the (b)(2)
class.
some of whom happen to be members of the distinct subgroups. Document 1556-1. 742‐43
(2d Cir. We held as much in Literary Works. 982 F.
Moreover. is fixed and finite. 993 F. and S. 1806077.2d 721.

Problems arise when the (b)(2) and (b)(3) classes do not
have independent counsel. can influence the
28
. which come to bear on the defendants. 06/30/2016.”
Charron.S.Case 12-4671. and the gap between the interests of
the (b)(3) and (b)(2) classes will continue to widen. As in Amchem. at 849). the initial overlap will be reduced. seek distinct relief. or that (b)(3) and (b)(2) classes necessarily and always require
separate representation.
None of this is to say that (b)(3) and (b)(2) classes cannot be combined in a
single case.
and Literary Works. have non‐overlapping
membership. Ortiz. settlements that are approved simultaneously with class
certification are especially vulnerable to conflicts of interest because the
imperatives of the settlement process. 731 F. Document 1556-1.3d at 250 (quoting Ortiz.’ such as Rules 23(a) and (b). Page28 of 41
Over time. The
requirements of Rule 23(a) are applied with added solicitude in the
settlement‐only class context because “the certification of a mandatory settlement
class ‘effectively concludes the proceeding save for the final fairness hearing.’ and
there is thus a heightened risk of conflating the fairness requirements of Rule
23(e) with the independent requirement of ‘rigorous adherence to those
provisions of the Rule designed to protect absentees. 527 U. 1806077. and (importantly) are certified as settlement‐only. and even the mediators and the court itself. the
class counsel.

1806077. Id. and
Literary Works. For this reason. we “note[d] that unlike the situation in Amchem. Ortiz.3d at 250. Charron also spoke of counsel trading
one claim for another (which may be permissible)..” id. Document 1556-1. Accordingly.
We have reason to think that that occurred here. we are concerned that counsel will trade the interests of one class for
another (which is not). Structural defects in this
class action created a fundamental conflict between the (b)(3) and (b)(2) classes
29
. 731 F. 06/30/2016. in the settlement‐only class
action.Case 12-4671.
Of course we have blessed multi‐class settlements that were the product of
unitary representation. but those were entered into after class certification. but that observation has
less force in the settlement‐only context. the settlement here was not being approved at the same time that
the class was being certified. True. Page29 of 41
definition of the classes and the allocation of relief. we scrutinize
such settlements more closely. we approved a settlement negotiated by unitary counsel in Charron. we were
more skeptical of allegations that subclass conflicts required separate
representation.” Charron. and strike
compromises based on probabilistic assessments. based on their perceived merits. Charron observed “[a]ll class settlements value some
claims more highly than others. but
before doing so. For
example.

06/30/2016. Like the Supreme Court
in Amchem. This outcome is
confirmed by the substance of the deal that was struck. Dow Chem.3d 249. See Stephenson v.3d at 252. Document 1556-1. Page30 of 41
and sapped class counsel of the incentive to zealously represent the latter.
Apparently. Accordingly. 1806077. 654 F. 111 (2003) (“Res judicata generally applies to bind absent class members
except where to do so would violate due process” and “[d]ue process requires
adequate representation at all times throughout the litigation.”). This latter interest
highlights the next problem with the Settlement Agreement. aff’d in part by an equally divided court and vacated in part..S.Case 12-4671. we “examine a settlement’s substance for evidence of prejudice to the
interests of a subset of plaintiffs” when “assessing the adequacy of
representation. Here.” Literary Works. 2001). 273 F. Co. 260
(2d Cir. the only unified interests served by herding these competing claims
into one class are the interests served by settlement: (i) the interest of class counsel
in fees.
II
This opinion already concludes that class plaintiffs were inadequately
represented. 539
U. and (ii) the interest of defendants in a bundled group of all possible
claimants who can be precluded by a single payment. the settlement and release that resulted from this
representation are nullities. the bargain that was
30
.

Case 12-4671. 311 U. see also Stephenson.S.
“It is familiar doctrine of the federal courts that members of a class not
present as parties to the litigation may be bound by the judgment where they are
in fact adequately represented by parties who are present” consistent with “the
requirements of due process and full faith and credit. Document 1556-1. Literary Works concluded that inadequate
representation was demonstrated by the relief afforded to a subset of the class.
A
As discussed above. 273 F. “[p]laintiffs in a class action may release claims that were or could have
been pled in exchange for settlement relief”.3d at 106.
Similarly. at
42‐43 (emphasis added). “[W]here class plaintiffs have not adequately
represented the interests of class members.” Id.”
Wal‐Mart Stores.3d at 261 (“Part of the due
process inquiry (and part of the Rule 23(a) class certification requirements)
involves assessing adequacy of representation and intra‐class conflicts. 1806077.” any “[c]laims arising from a shared
set of facts will not be precluded.” Hansberry. 06/30/2016. 396 F. but this authority “is limited by the
‘identical factual predicate’ and ‘adequacy of representation’ doctrines.
31
. Page31 of 41
struck between relief and release on behalf of absent class members is so
unreasonable that it evidences inadequate representation.”). at 108.

at 254. the release in Stephenson was itself proof of inadequate representation.
wheras the release in Wal‐Mart Stores did not impugn the class’s representation. but also because they solely bore the risk that the total amount
claimed would exceed a preset liability cap. The underlying litigation provided compensation only for those who
32
.
Literary Works held that class members with claims in one of the categories
were inadequately represented not only because they did not receive separate
representation. we considered a collateral attack on a class action that had
established a settlement fund for individuals injured by exposure to Agent
Orange. We observed that this feature of the
settlement could not be justified by the relative weakness of those claims because
that fact was already accounted for. 06/30/2016. Page32 of 41
Similarly. When
“one category [of class members are] targeted for [worse treatment] without
credible justification” it “strongly suggests a lack of adequate representation for
those class members who hold only claims in this category.Case 12-4671. 1806077. these cases illustrate when the tradeoff between relief and
release as applied to a class member can violate due process. We could
discern no reason for subjecting the single category of claims to the whole risk of
over‐subscription. 654 F. Document 1556-1.3d at 253.
Considered together. Id.” Id. Literary Works.
In Stephenson. nor could the settlement’s proponents.

Id. at 261. but who learned of their injury after 1994. Objectors argued that they were inadequately represented
because class representatives did not pursue certain claims as vigorously as
others. 273 F.
which foreclosed all claims arising from the same factual predicate as that alleged
in the complaint. We rejected this basis for objection because “adequate representation of a
particular claim is determined by the alignment of interests of class members. the plaintiffs could not be bound by the
settlement release. Analogizing the case to Amchem and Ortiz.” Stephenson.Case 12-4671.
The result violated due process. yet released all future claims. 1806077. we concluded that
the two individuals were inadequately represented in the prior litigation because
the settlement purported to resolve all future claims but “the settlement fund was
permitted to terminate in 1994” and “[n]o provision was made for post‐1994
claimants. 06/30/2016. The two challengers could not have
been adequately represented if their class representative negotiated a settlement
and release that extinguished their claims without affording them any recovery. not
33
.
A similar challenge was raised to the settlement release in Wal‐Mart Stores.3d at 260‐61. challenged the release as
applied to them. Two
individuals who fell within the class definition of individuals injured by Agent
Orange. Document 1556-1. Page33 of 41
discovered their injury before 1994.

Those class members that
34
.Case 12-4671. at 110. Page34 of 41
proof of vigorous pursuit of that claim. 396 F.
and merchants that begin business after July 20. 2021 gain no benefit at all. at 112. Moreover.
B
Merchants in the (b)(2) class that accept American Express or operate in
states that prohibit surcharging gain no appreciable benefit from the settlement.3d at 113. 1806077. they had disagreements about which claims were most
valuable and what relief was adequate. the settlement in Wal‐Mart
Stores covered only a past.” Wal‐Mart Stores. Id. No future claimants or claims were
covered by the Wal‐Mart Stores settlement or release. The objectors in Wal‐Mart Stores did not
allege divergent interests. In
exchange. 06/30/2016. Id. Document 1556-1. finite period and did not preclude future suits over
conduct post‐dating the settlement. class counsel forced these merchants to release virtually any claims
they would ever have against the defendants. every claimant
from the objecting groups benefitted from the settlement.
Stephenson was “not directly on point” because in the Agent Orange settlement
(as in the Amchem and Ortiz settlements) “future claims had not been considered
separately from claims involving current injury” despite these two groups having
clearly divergent interests. Finally. Id.

Page35 of 41
effectively cannot surcharge and those that begin operation after July 20. California.
It may be argued that the claims of the (b)(2) class are weak and can
command no benefit in settlement. Merchants in New York and merchants that accept
American Express can get no advantage from the principal relief their counsel
bargained for them.Case 12-4671. or accepts
American Express (whose network rules prohibit surcharging and include a
most‐favored nation clause). Document 1556-1. that argument would seem to be
foreclosed because other members of the same class with the same claims – those
that do not take American Express and operate in states that permit surcharging –
35
. For this
reason. or
the locking‐in of the Durbin Amendment and DOJ consent decree. it is imperative that the (b)(2) class in fact benefit from the right to
surcharge. or the all‐outlets provision. However. To the
extent that the injunctive relief has any meaningful value. But that relief is less valuable for any merchant that operates in New
York. 1806077. or Texas (among other states that ban surcharging).
No one disputes that the most valuable relief the Settlement Agreement
secures for the (b)(2) class is the ability to surcharge at the point of sale. 06/30/2016. 2021
were thus denied due process. it comes from
surcharging. not from the buying‐group provision.

06/30/2016.
36
. Alternative forms of relief might have conferred
a real and palpable benefit.g. A
significant proportion of merchants in the (b)(2) class are either legally or
commercially unable to obtain incremental benefit from the primary relief
negotiated for them by their counsel. the more unfair the treatment of merchants that cannot avail
themselves of surcharging. There is no basis for this unequal
intra‐class treatment: the more valuable the right to surcharge (a point the parties
vigorously dispute). did not press certain
claims more forcefully.Case 12-4671. or did not seek certain changes to the network rule books
more zealously. This is a matter of class counsel trading the claims of many
merchants for relief they cannot use: they actually received nothing.. Document 1556-1. This is not a matter of certain merchants (e. Page36 of 41
derive a potentially substantial benefit. and class counsel knew at the time the
Settlement Agreement was entered into that this relief was virtually worthless to
vast numbers of class members. such as remedies that affected the default interchange
fee or honor‐all‐cards rule. 1806077.
This is not a case of some plaintiffs forgoing settlement relief. those
based in New York and those that accept American Express) arguing that class
counsel did not bargain for their preferred form of relief.

2021.
Merchants that cannot surcharge. There is no evidence to suggest that
merchants operating after July 20. are also bound to an exceptionally broad release. 2021. 2021 merchants are future claimants who
had their claims settled for nothing. The Settlement
Agreement releases virtually any claim that (b)(2) class members would have had
against the defendants for any of the defendants’ thousands of network rules. Like the servicemen with latent
injury in Stephenson. 2021.Case 12-4671. Page37 of 41
Another fault line within the (b)(2) class runs between merchants that will
have accepted Visa or MasterCard before July 20.
And unlike the relief. Document 1556-1. the Settlement Agreement consigns the former
to an unambiguously inferior position. 2021 would have weaker claims than those
operating before July 20. yet. and those that open their doors after July
20.
while the latter are at the mercy of the defendants to receive relief because the
Settlement Agreement explicitly states that the defendants’ obligation to provide
any injunctive relief terminates on July 20. 2021. 06/30/2016. which expires on July 20. the post‐July 20. 2021. we conclude that
such arbitrary harsher treatment of class members is indicative of inadequate
representation. 1806077. the release operates
37
. and those that will come
into being thereafter. As in Literary Works. The former are at least guaranteed some form of relief.

Therefore. Of course. but either way. or will have in the
future. it remains to be seen how much the mandated rules will cost
the defendants or benefit the merchants.Case 12-4671. If
the defendants see that permitting surcharging had little effect on their business. after July 20.
Even if the defendants revert back to all their pre‐Settlement Agreement practices.. the honor‐all‐cards and default interchange rules. This release permanently immunizes the
defendants from any claims that any plaintiff may have now. 1806077.g.
they can decide to maintain the rules changes provided for in the injunctive relief
so that only merchants that do not accept American Express and do not operate in
38
. the (b)(2) class remains bound to the
release but is guaranteed nothing. Document 1556-1. 2021. the defendants win.
the release continues to preclude any claim based on any rule that was not altered
by the Settlement Agreement. Those claims will become
actionable only if the defendants elect to revert to their pre‐Settlement Agreement
rules. 2021 may have
are ones relating to those network rules that are explicitly changed by the
injunctive relief in the Settlement Agreement. Page38 of 41
indefinitely. that arise out of. The defendants never have to worry about future
antitrust litigation based on their honor‐all‐cards rules and their default
interchange rules.
That is because the only claims that merchants post‐July 20. 06/30/2016. e.

and in
return have the chance that the defendants will permit surcharging. this release has much in common with the releases in Stephenson. 06/30/2016. 654 F. 1806077. 2021 give up claims of potential
value and receive nothing that they would not otherwise have gotten. including (perhaps
most importantly) the honor‐all‐cards and default interchange rules. Page39 of 41
states like New York. we have no way to ascertain the value of the claims forgone. California. 2021.
In sum. and Texas will be able to avail themselves of that
limited relief. Document 1556-1. Since
there was no independent representation vigorously asserting these merchants’
interests. merchants that cannot surcharge receive valueless relief while
releasing a host of claims of unknown value. In substance
and effect.
This bargain is particularly unreasonable for merchants that begin
accepting Visa or MasterCard after July 20. if the defendants observe that surcharging
took a significant toll on their business.
Amchem. See
Literary Works. They will be deemed to have
released all of their claims pertaining to a whole book of rules.3d at 253.Case 12-4671. this release applies to future claims and
39
. In all events. merchants operating after July 20. they can revert to prohibiting surcharging
and expose themselves to lawsuits that are limited to challenging the surcharging
ban. On the other hand. and Ortiz. Like those.

Case 12-4671. the
settlement release in Wal‐Mart Stores (another merchant class action against Visa
and MasterCard) did not bind future claimants and did not preclude new suits for
similar conduct in the future. 06/30/2016.3d at 252. And our
approval of the Charron settlement release explicitly distinguished it from those
in Amchem. and Literary Works on the ground that it did not extinguish
claims other than those that were the subject of relief in the settlement. Document 1556-1. The Settlement
Agreement waives any claim any (b)(2) merchant would have against any
defendant arising out of any of the current network rules. or those imposed in the
future that are substantially similar thereto.3d at 110. 1806077. We of course acknowledge that
40
. 2021 suffer an
unreasonable tradeoff between relief and release that demonstrates their
representation did not comply with due process. Page40 of 41
claimants.) This Settlement Agreement is
also distinguishable from releases that have passed muster. Wal‐Mart Stores. Ortiz. (At least the authors in Literary Works could
opt out from their inadequate representation. The (b)(2) class had no notice and no
opportunity to opt out of this deal. 396 F. 113. and disadvantaged class members are bound to it. Charron.
Merchants that cannot surcharge (by reason of state law or rules of
American Express) and those that begin operating after July 20.
731 F. For example.

654 F. And it
is true that “[p]arties often reach broad settlement agreements encompassing
claims not presented in the complaint in order to achieve comprehensive
settlement of class actions. But the benefits of litigation peace do not outweigh
class members’ due process right to adequate representation. Document 1556-1.Case 12-4671. 06/30/2016.3d at 106. 396 F. particularly when a defendant’s ability to limit his
future liability is an important factor in his willingness to settle. Page41 of 41
“[b]road class action settlements are common. 1806077.
CONCLUSION
For the foregoing reasons. we vacate the district court’s certification of the
class.” Wal‐Mart Stores.3d at 247‐48.
41
. reverse approval of the settlement. since defendants and their cohorts
would otherwise face nearly limitless liability from related lawsuits in
jurisdictions throughout the country. and remand for further proceedings not
inconsistent with this opinion.” Literary
Works.